Pills line the shelves in the pharmacy at Venice Family Clinic in Los Angeles April 16, 2007. REUTERS/Lucy Nicholson

The U.S. government could save more money by increasing the use of cheaper generic drugs rather than hiking rebates paid by manufacturers, an industry executive said on Thursday.

A healthcare reform plan proposed by Senate Finance Committee Chairman Max Baucus, unveiled on Wednesday, would raise the rebates generic drugmakers must pay to the government on medicines used by patients in the Medicaid health program for the poor.

The changes are meant to help pay for an overhaul of the U.S. healthcare system and wider insurance coverage.

There is bigger money out there, William Marth, North American chief executive for Teva Pharmaceutical Industries Ltd, said about the rebates.

The bigger money is really increasing generic utilization to at least the same levels that exist in nongovernmental use of medicines, Marth told reporters at a meeting of the Generic Pharmaceutical Association (GPHA).

Marth said about 70 percent of prescriptions dispensed in the United States are filled with generic drugs, which are cheaper copies of brand-name medicines. For the state-federal Medicaid program, the rate is 64 percent.

For each 1 percent increase in generic use, Medicaid could save $315 million annually, Marth said. By comparison, the increased rebates would save an estimated $46 million a year, Teva officials said.

The finance committee will vote next week on the plan and how to pay for the estimated $856 billion cost over 10 years. The committee's final product will be merged with a measure passed by the Senate health panel. Each chamber of Congress will take up a version of the healthcare bill in the coming weeks.

GPHA said it in a statement that the higher rebates proposed by Democrat Baucus could have the unintended consequence of also increasing the costs of generics for consumers and the government by weakening competition.

Adding costs to generic drugs is simply not worth the risk of reducing competition in the markets that generate these tremendous savings, the group said.